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Chinese propane dehydrogenation plants running at high rates despite lower margins

Singapore — Major propane dehydrogenation plants in China are ramping up operating rates after returning from maintenance despite lower margins in August, sources at the PDH plants said this week.

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Chinese PDH margins have decreased by 10% on the month to an average of $314/mt in August, Platts Analytics data showed.

However, run rates of PDH plants are higher in August than the 73% in July, as PDH plants returned from scheduled maintenance.

Only Ningbo Haiyue's PDH plant was still under maintenance during August, which was expected to end by August 5 according to market sources.



"Our two PDH sites in Ningbo and Zhangjiagang now run very well and current run rate is higher than 90%," a source from Oriental Energy said.

Oriental's Zhangjiagang Yangzijiang facility has a propane processing capacity of 720,000 mt/year, while the Ningbo Fuji Petrochemical plant, a subsidiary of Oriental Energy, has a propane processing capacity of 790,000 mt/year.

Another major PDH plant Yantai Wanhua is also operating at a rate above 90%, a source from Wanhua said Tuesday. The Yantai Wanhua facility has a processing capacity of 900,000 mt/year.

Despite declining margins due to a strong propane price, PDH plant operators still believe that current margins are healthy.

"We feel $200/mt margin is a comfortable level for PDH production," a Chinese PDH plant operator said.

CFR South China prices for propane have firmed up from $446/mt at the start of the month to $505.50/mt Tuesday, S&P Global Platts data showed.

Propane prices have firmed on robust demand from buyers before the onset of the North Asian winter, supported by supply disruptions from Hurricane Harvey in the US Gulf Coast and a tight spot market in the Middle East, trade sources said.

Despite high LPG prices, Chinese PDH plant operators will not extend cancellations of US cargoes for September, as they believe that it is still viable to import from the US at the current margins due to higher domestic propylene prices.

"Although the propane price became stronger during the past weeks, propylene also kept up at high levels, the margin is still quite good," a trader said, pointing to current propylene prices in Shandong at Yuan 7,700/mt (about $1,168/mt).

US LPG stocks are lower by 20 million barrels compared to the same time last year. The Mont Belvieu non-LST propane was $407/mt Tuesday compared to $250/mt during the same time last year, Platts data showed. There had been 10 cargo cancellations for August as the east-west arbitrage had shut.


CHINA SEPTEMBER LPG IMPORTS TO RECOVER


China's propane imports are poised to rebound in September, as major PDH plants are expected to keep operating rates above 90%, trade sources said.

"I feel August [propane] imports are still at a relatively low level. From September onwards [imports] should pick up again," a trader said.

About 40% of the propane imported by China is used by PDH plants to produce propylene, Platts data showed.

Propane imports are not expected to recover in August due to weak seasonal demand from residential users, which takes up 40% of imported propane in China for cooking and heating purposes, trades sources said.

China's net LPG imports in July were down 27% month on month at 1.23 million mt, the second consecutive drop from a record high of 1.99 million mt in May, according to calculations by Platts based on General Administration of Customs data published earlier this month.

Chinese PDH plants cannot use domestic propane for producing propylene since their plants are configured to use imported propane.

"We don't think domestic propane can meet up with the specs requirement from UOP and Lummus, PDH will still rely on imported cargoes", a Chinese PDH plant operator said. He was referring to the process technology from Honeywell UOP and Lummus Technology Inc.

Tianjin Bohai Chemical Industries, which operates a PDH plant with a 720,000 mt/year propane processing capacity , purchased 46,000 mt propane through a private tender earlier this month, brokers added.

It takes around 1.2 mt of propane to produce 1 mt of propylene, and the processing cost for PDH plants in China was estimated around Yuan 1,500-1,600/mt by market sources.

There are eight PDH plants in China with a combined propylene production capacity of 4.61 million mt/year and they can consume up to 5.53 million mt/year of propane if run at full capacity.

--Srijan Kanoi, srijan.kanoi@spglobal.com
--Edited by Maurice Geller, maurice.geller@spglobal.com